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Five Star Fires Starting Gun for New Italy Election Campaign

(Bloomberg) -- Italy’s Five Star Movement has abandoned its efforts to form a government and is gearing up for fresh elections.

Luigi Di Maio, head of the anti-establishment party, declared the campaign open with President Sergio Mattarella still considering one last attempt to break a two-month deadlock with a technocratic government. Matteo Salvini of the anti-immigrant League also rejected the idea of a non-partisan prime minister and called for elections on July 8 if, as seems likely, there’s no last-ditch agreement between party leaders.

“From today we’re fighting an election campaign and we’ll tell people about these two months of lies,” Di Maio said in a video on Facebook on Monday, accusing his rivals of acting only in their own interests. He denounced Salvini -- with whom he had been negotiating for weeks -- of trying to form a government of “turncoats and traitors.”

The populist rivals are betting that they can break the political impasse by going back to the voters rather than cutting a deal with other parties. They’ll likely denounce Mattarella’s efforts at compromise as another establishment stitch-up akin to the unelected government of Mario Monti that stepped in from 2011 to 2013 to steer Italy through the height of the financial crisis.

‘Neutral Government’

Mattarella urged parties to back a “neutral government” after meeting leaders Monday. He told reporters he favors it lasting until the end of December, after which early elections could be held. Mattarella added that elections in the summer were possible, but it would be difficult for people to vote; a ballot in the autumn could jeopardize approval of the 2019 budget in parliament and unsettle financial markets.

Potential premiers floated by newspaper Corriere della Sera on Tuesday included Elisabetta Belloni, 59, secretary-general at the Foreign Ministry who had served as chief of staff when Paolo Gentiloni, the outgoing prime minister, was foreign minister; Carlo Cottarelli, formerly in charge of the government’s spending review and previously an executive director at the International Monetary Fund; and Marta Cartabia, 54, deputy head of the Constitutional Court.

The breakdown of talks amounts to a failure for Mattarella, who’s been trying to engineer a consensus to push through the 2019 budget and reform the voting system before holding another ballot. Without electoral reform, the next parliament could prove just as divided as the one elected in March.

‘Barring a Miracle’

“Barring a miracle, we’re heading for a repeat election with the same electoral system,” said Fabio Bordignon, a political science professor at the University of Urbino.

Salvini has benefited the most from the post-election bargaining and quarreling. The League has jumped 4 percentage points since the vote, according to an average of surveys by polling group Youtrend on May 3. Five Star is up a point at 34 percent while the center-right alliance is close to 40 percent.

‘Losers’

The League leader is still paying lip service to the possibility of a last-minute U-turn from Di Maio paving the way for a deal -- he’s ruled out an alliance with the “losers” of Gentiloni’s Democratic Party -- though he’s also turning his attacks toward Five Star.

“I’m doing everything I can to give a government to this country,” Salvini told reporters Monday. “Five Star is pretty fickle -- a bit here, a bit there. The next time, at the election, it will be a referendum, either them or us.”

Mattarella is tussling with the populists to retain control of the process and may name a compromise candidate for prime minister as early as Tuesday, regardless of their opposition, according to a senior state official who asked not to be named. While the president’s nominee could be sworn into office, he would lose a confidence vote in parliament unless either Di Maio or Salvini drop their opposition. The official said elections will probably be held in July unless there is a shift.

Investors have so far shown little worry about the political infighting despite the threat of the populists’ spending policies. The spread between Italy’s 10-year government bonds and similarly dated German bunds widened by 3 basis points to 126 basis points on Tuesday compared with an average of 133 basis points this year.

“Markets are going to take a hit if we go for July elections and another two months without knowing whether we get a government or not,” said Erik Jones, professor of international political economy at the Johns Hopkins University in Bologna.